Lisbon strategy: at the junction between now and then

2005-12-14

By Luc Nijs [ SORAINEN LAW OFFICES ]

Some weeks ago, the Euro-pean Commis-sion released a report on how, from a tax perspective, it thinks the commission can contribute to achieving the Lisbon strategy. The latter is a piece of work the EU agreed upon in 2000 so that Europe would become the "most dynamic, innovative and knowledge intensive economy in the world." It was quite ambitious, since the numbers showed that Europe seriously lagged behind the rest of the developed world, particularly with the U.S.A.

As with many things in the EU, it was invented, but not executed. Earlier this year, the commission realized that it had forgotten to do anything about Lisbon. So code red was activated 's holidays withdrawn of paper-pushing Brussels and first-line excuses invented. This time, the cause of the malfunction was with the member states (according to the commission): They had failed to come up with consistent strategies to build a pan European dynamic to achieve that goal. On the contrary, they limited themselves to developing undigested national strategies that would mainly benefit local economies and build walls of competitive protectionism.

Well, let's have a closer look here. The proposal now presented by the European Commission tries to deliver a summary of those projects currently in the air and stresses how they will contribute to achieving the goals set: renewed customs policies, finalizing VAT harmonization, reducing compliance for companies active in Europe through uniform TP documentation requirements, VAT compliance and a uniform tax base for Corporate Income tax purposes in Europe within 4 years. From there, the report deals with a potpourri of smaller and less focused proposals such as reducing tax fraud overall, developing a strategy to combat counterfeiting, protection of IP rights, etc.

Alright already 's nice summary, but I'm lacking vision here. These projects are in the pipeline, and it will take time to work them through the red tape. On the other hand, the reality is today, and reality for the Baltics includes steady economic growth (higher than the European average) but also soaring inflation rates, which might even (probably) hinder them accessing the Eurozone in 2007 as planned. The catch-up with Western Europe is ongoing but needs stimilus. Pro-active measures to stimulus R&D, educating people and building an economically steady infrastructure for the days to come.

I was happy to see that the Latvian government took the leap and introduced a new (revised) incentive that includes a depreciation for new technological equipment starting Jan. 1, 2006. Unfortunately, it will not be sufficient. A restrictive fiscal policy is needed that will offset the expansive monetary policy followed by the European Central Bank (even after last week's event), and that, combined with a slow down in the velocity of the money supply and a reduction of the economies' output is necessary to control inflation.

The market takes care of itself, but tax measures as proposed by the commission will not contribute in any way in the short- to mid-term to capture the problems of our Baltic countries. Vision includes a way to transit an idea into practice thereby respecting the overall goals set by a company, governmeent or institution.

Unfortunately, this attempt of the commission has been the next failure to add value to the process needed to develop economies, a cornerstone for the future of Europe. Apparently, the "no" votes earlier this year in The Netherlands and France were no clear enough a signal.

I hope that all EU officials will find an edition of: "Execution: The discipline of getting things done" (New York, Larry Bossidy and Ram Charan, Crown Business, 2002) under their Christmas tree. I recommend they reading it. I'm sure Santa is as concerned as I am about the future of Europe and the Baltics in particular.

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